[Federal Register Volume 67, Number 193 (Friday, October 4, 2002)]
[Notices]
[Pages 62278-62279]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-25224]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46566; File No. SR-NYSE-2001-24]


Self Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Approving Proposed Rule Change and Amendments Nos. 1 and 2 
Thereto Amending Exchange Rule 97 Which Limits Member Trading Because 
of Block Positioning

September 27, 2002.
    On August 17, 2001, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend NYSE Rule 97 (Limitation on Member 
Trading Because of Block Positioning) so that it applies only to 
transactions executed at or near the end of the trading day, and to 
provide exceptions to the rule for member organizations that establish 
the requisite internal information barriers and for certain hedging 
transactions. The Exchange filed Amendment No. 1 to the proposed rule 
change on April 17, 2002.\3\ The Exchange filed Amendment No. 2 to the 
proposed rule change on June 28, 2002.\4\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Richard P. Bernard, Executive Vice President 
and General Counsel, NYSE, to Nancy J. Sanow, Assistant Director, 
Division of Market Regulation (``Division''), Commission, dated 
April 16, 2002 (``Amendment No. 1'').
    \4\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE, 
to Nancy J. Sanow, Assistant Director, Division, Commission, dated 
June 27, 2002 (``Amendment No. 2'').
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    The proposed rule change, as amended, was published for comment in 
the Federal Register on July 19, 2002.\5\ The Commission received no 
comments on the proposal.
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    \5\ See Securities Exchange Act Release No. 46191 (July 12, 
2002), 67 FR 47588.
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    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange \6\ 
and, in particular, the requirements of Section 6 of the Act \7\ and 
the rules and regulations thereunder. The Commission finds specifically 
that the proposed rule change is consistent with Section 6(b)(5) of the 
Act \8\ because it is designed to promote just and equitable principles 
of trade, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system.
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    \6\ In approving this proposed rule change, the Commission notes 
that it has considered its impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f.
    \8\ 15 U.S.C. 78f(b)(5).
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    Currently, NYSE Rule 97 prohibits a member firm that holds any part 
of a long position in its trading account, which resulted from a block 
transaction with a customer, from purchasing for an account in which 
such member firm has an interest, additional shares of such stock on a 
``plus'' or ``zero plus'' tick for the remainder of the trading day 
under certain conditions. NYSE Rule 97 is intended to address concerns 
that a member firm might engage in manipulative practices by attempting 
to ``mark-up'' the price of a stock to enable the member firm to 
liquidate a position it acquired during a block transaction it effected 
with a customer at a profit, or to maintain the market at the price at 
which the position was acquired.
    Under the proposed rule change, NYSE Rule 97 would prevent a member 
organization that holds a long position in a security that resulted 
from a block transaction with a customer from effecting within twenty 
minutes of the close of trading on the Exchange, a purchase on a 
``plus'' tick in that security at a price higher than the lowest price 
at which any block was acquired in a previous transaction on that day, 
if the person responsible for the entry of such order to purchase the 
security had knowledge of the block position.\9\ The proposed rule 
change would also add an exception to permit a member firm to make an 
otherwise prohibited purchase during the last twenty minutes of the 
trading day to hedge a position that is economically equivalent to a 
short position that the firm acquired in the course of facilitating a 
customer order. Under this exception, the hedge must be clearly related 
to transaction that created the short position and the size of the 
hedge must be commensurate with the number of shares required to hedge 
such position.
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    \9\ NYSE Rule 97 only applies to transactions on the NYSE. 
However, NYSE Rule 97 would apply to transactions on the NYSE 
regardless of where the member firm acquired the block position. 
Telephone conversation between Jeffrey Rosenstrock, Senior Special 
Counsel, NYSE, and Christopher Solgan, Attorney, Division, 
Commission, on September 13, 2002.
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    The Commission believes that the proposal to limit the restrictions 
on purchasing stock when a firm holds a long position that resulted 
from a block facilitation to the last twenty minutes of the trading day 
is consistent with the Act. The Commission believes it is appropriate 
for the NYSE to restrict such trading activities during this time of 
the trading day. However, the Commission notes that purchases executed 
during any time of the trading day continue to be subject to the anti-
manipulative provisions of the Act. Accordingly, the Commission expects 
the NYSE to continue to surveil the activities of firms that trade 
while holding positions that result from block transactions with 
customers to ensure that they are not engaging in manipulative acts and 
practices during the entire trading day.

[[Page 62279]]

    In addition, the Commission believes that the use of information 
barriers should ensure that member firms' traders are not executing 
trades to mark-up or maintain the price of a security it acquired 
during a block transaction with a customer. Finally, the Commission 
believes that the hedge exception is consistent with the Act. The 
Commission believes that the NYSE has tailored the hedge exception to 
ensure that when a member firm purchases a security to hedge a position 
that is economically equivalent to a short position, it does so to 
hedge that short position, not to affect the security's price.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\10\, that the proposed rule change, as amended, (File No. SR-NYSE-
2001-24) is approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-25224 Filed 10-3-02; 8:45 am]
BILLING CODE 8010-01-P